Wendy McElroy: Interview With Jeffrey Tucker on All Things Crypto, Part Two

The multi-faceted Jeffrey Tucker is an American writer who focuses on market freedom, anarcho-capitalism, and cryptotech. He is the author of eight books on economics, politics, and culture, a much-sought after conference speaker, and an Internet entrepreneur. Jeffrey is editorial director and vice president of the venerable American Institute for Economic Research, founded in 1933. His career has focused on building many of the web’s primary portals for commentary and research on liberty, and is undertaking new adventures in publishing today.

I have incredible good fortune, as Jeff has written the preface to my book “The Satoshi Revolution,” which will be published in early 2019 by bitcoin.com. Meanwhile, a rough draft of the book is available online for free, compliments of bitcoin.com. Be sure to come back for the substantially-rewritten and thoroughly-edited book. I expect there will be a forum established here for me to chat with readers and answer their questions.

Wendy: I was very impressed by an article in which you argued against the idea that Misesian regression theorem invalidated bitcoin as a money. For readers, the Regression theorem claims “Any valid medium of exchange (money) has to have a previous use as something else.” Could you offer an overview of your argument?

Jeff: Mises’s argument was that the root value of money traces to a conjectural history in which the pre-money form was deployed, for example, in barter. By 1949, Mises became hardened in this view: money had to originate in barter; there is no other path. From a historical point of view, this is probably correct. But it is a theoretically misleading formulation.

To understand the theory behind the conjectural history, you have to return to Mises’s original 1912 argument. Here he is more precise. In order for something to become money, it had to have a pre-existing use value. Use value. That’s not the same thing as being used in barter trade. His point was that you can’t take a useless thing and call it money and expect it to take flight.

How can we reconstruct the history of Bitcoin to discern if this applies here? From the January 2009 genesis block until October of that year, Bitcoin’s posted dollar exchange value was exactly $0. And yet we know, because we have a perfect historical record, that there were many thousands of trades being made all these 10 months. What was happening? What was going on? This was a period in which the network was being tested by enthusiasts. What does this network do? It permits the peer-to-peer exchange of immutable information packets on a geographically non-contiguous basis using the Internet so that they can come and go without corruption or compromise.

Is this a valuable service and does it work? This is what was being tested. By October, the use value of this network had proven itself, and so we began to see the emergence of a dollar/Bitcoin exchange ratio. That is to say, Bitcoin was priced as a scarce good. We can see, then, that the conditions of the “Regression Theorem” as theory are met via the services provided by the blockchain. You can also see, however, that if an economist looking at this did not understand the payment system embedded as part of the monetary technology, he or she would be completely befuddled.

To be sure, some very smart people disagree with me. My friend William Luther is blunt about his opinion about his matter. He thinks the Regression Theorem is just wrong, so it doesn’t matter if Bitcoin is theoretically compliant. He once made the argument to me and pretty much backed me into a corner. If he turns out to be correct, I’m fine with that. What matters more, my theory or existing reality? I faced that problem in early 2013 and concluded that I had, as a matter of intellectual integrity, to defer to reality, even if it meant admitting the wrongness of my position or even that of Mises’s. Shocking, I know!

Wendy: The crypto community parallels the libertarian one, in ways both good and bad. An example of the latter is the deep personal schisms with which it is rift. You are a person who stays away from internecine battles. What advice do you have to others who wish to do the same?

Jeff: I try to stay focused on the big picture and imagine that my audience is not my friend network but rather the general public. I try to serve that readership. That means no Twitter wars. No flame wars at all. Plus, I’ve seen vast destruction spread by vicious internecine battles. I’ve seen friendships wrecked, bad theory perpetrated by virtue of ego alone, massive setbacks take place in understanding and marketing. Also, there are some people who are ideologically attached to the friend/enemy distinction. Unless they are smashing someone and hitting “the enemy” they think they are not working. It’s extremely strange how some people thrive off this posture.

To be sure, I have no trouble taking a stand, as I have when libertarians have wrongly drifted left and right. Why? I like to seek greater intellectual clarity and share my thoughts with others, in hopes that I can help others understand too. I’m not seeking saints and not looking to burn witches. I try to choose my battles carefully and stay focused on doing productive work, cooperating with anyone who thinks, writes, and acts in good faith. That’s the main thing to ask yourself, not “Who have you destroyed today?” but rather, “What kind of light have I brought to the world today?”

Wendy: Different explanations of crypto’s recent plunge in price have been advanced. Some people point to increased government regulation, especially in China and in the U.S., where the SEC is taking active steps against the crypto community. Many believe the tumble resulted from a bursting bubble that was created by surging prices earlier in 2018. Still others speak of manipulation by “the whales.” These explanations are not mutually exclusive, of course. But do you favor one over the other? Do you have another explanation?

Jeff: It’s impossible to untangle all of this, and many of the factors you name are right, but let me add another issue. The amazing bull market of 2017 was fueled by wild optimism and adoption. People in the space were ready to rock. Then this optimism was massively interrupted by a terrible realization. Bitcoin would not scale. It stopped behaving like Bitcoin and started becoming more expensive and slower than regular credit cards. To use street parlance, it sucked. It was an amazing thing to have happened. It was a true calamity. And to top it off, it was completely the fault of the guardians of the code. When the code would not adapt to broader use, the optimism turned to pessimism and we experienced a huge setback.

By the way, I’ve worked for years with people who are geniuses at code but completely stupid when it comes to the user experience. It was the tragedy of Bitcoin that it fell prey to exactly this same problem. Coders desperately desire cleanliness, zero bloat, no cruft, perfect logic. It’s an old joke in the community that a coder invites you to use his new program but all you see on the black screen is a blinking green cursor. “Of course I still have to write the user interface.”

The OCD-ish mind of coders is a great thing for some purposes but this outlook has never prevailed in the commercial marketplace. In the early 1990s, there was a great battle over word processors. Microsoft kept making Word larger and larger, puffed with cruft, and the code monkeys were screaming that this was a disaster in the making. For my own part, I hated Word in those days and completely agreed that the hard-to-use light-weight programs were better.

But guess what? The market disagreed. Moore’s Law kicked it as it always does and eventually Word destroyed the competition. Why? Because it had more features that users like. Eventually the code got clean again and now Word itself has many elegant competitors. This is the normal progression of any software with a consumer focus.

Incredibly, some people with the keys to the kingdom of Bitcoin actually came to imagine that they could develop a digital money without an efficient, consumer-focussed use case. They drove a wedge between two functions: store of value and medium of exchange. This is not how much work. One function depends on the other. The freeze in the development of Bitcoin, in the name of staying light and elegant, was a fool’s errand. During all the scaling debates of 2014-16, they dug in their heels, shouting slogans, guarding their small blocks, instead of thinking about adoption and scaling when the time came.

When the time did come, Bitcoin did not perform. It fact – and it pains me to say this – it completely flopped.

Old school Bitcoiners like me were horrified to see it all happening. It was like an old friend had become possessed. When the mempools exploded, and the miners were in a position to ration trades based on price, it would cost $20 to send $2. This was in the fall and winter of 2017. It was absolutely disgraceful, and all the more so because the newly emergent “maximalists” defended this preposterous reality, acting if as this was part of the plan all along. They were like PeeWee Herman explaining that when he fell off the bike that he “meant to do that.” They flagrantly ignored even the title of the White Paper. Then the fork came in August of 2017, as it necessarily had to. But then followed a tremendous explosion of tokens of all sorts.

I don’t regret the competition, and I think this is all a good thing. I’m not a Bitcoin Maximalist. I’m a Competition Maximalist. But the absurdities of Bitcoin’s performance could have been completely avoided with just a bit of concern for the user. I would love it if we could perform a controlled experiment and see the BTC price today if the thing had properly scaled. We can’t do that. We have the reality we have.

Privately, of course, Bitcoin Core developers will admit that this was a disaster and that scaling will eventually take place on the chain. But at this point, pride and arrogance had gotten the best of them. How long will they continue to promise the Lightning Network while showing no concern for the use case? It’s time for a bit of humility.

To be sure, the Lightning Network is super great. We run a node at the Atlanta Bitcoin Embassy. I look forward to its final stability and adoption. The problem is that this was proposed as an eventual solution to the scaling problem that currently exists. Real-time technological development has to deal with problems in real time according to the time schedule of the market rate of adoption. Markets don’t obey code architects; the reverse has to be the case. Bitcoin Core forgot that at the very point it mattered most.

Wendy: Whatever the probable explanation(s), do you have a sense of when or whether crypto markets are likely to rebound significantly? Do you have a sense of what will cause a rebound or prevent one?

Jeff: Like all enthusiasts, I do expect a turnaround. Remember that I’ve been in these markets since BTC was $14. I’ve seen wild swings and long periods of nothingness. I’m prepared for anything.

Wendy: A debate within crypto parallels one I have heard between gold bugs. That is, should one take physical possession of precious metals, or they can be stored with reputable entities. In crypto, the parallel argument is whether coins should be in private wallets with undisclosed keys, or can they be stored with exchanges that do not demand possession of the keys?

Jeff: That is an interesting parallel! I think it is a valid one. I’m disappointed with the rise of what are effectively Bitcoin Banks that now dominate the market. I’ve reluctantly concluded that there is indeed a demand for financial intermediation, even within crypto. Here is a case where my own preferences are being overridden by market choice. That said, intermediation in crypto is not going to have the problems that it does in a central banking world. We have transparency. We have clear lines of ownership. We know the difference between money and a money substitute. I don’t necessarily think that intermediation is an evil thing in the crypto world.

Wendy: Any other thoughts you’d like to share on this subject?

Jeff: I would council Bitcoiners and anyone who sees the potential of this technology to be patient. Think back to railroads and how they came to be. The headlines were all about land speculation, wildcat banks, stock fraud, bankruptcies, and crashes. The reality, in the end, was a transformed world. It was true with the Internet too. People said for years that no one could make money on the Internet. The dotcom crash of 2000 seemed to prove it. Now Internet commerce leads the world. It will be a long time before crypto becomes competitive with nationalized money, and even longer before the pundit class comes around.

The important point is that we have the knowledge. We have the technology. We know now that it is possible. It can be done. There is no longer any excuse for not turning over the production and management of money itself to the market.

Also let us not forget what matters most. Bitcoin is a technology but the goal is much more grand: a better, more peaceful, more prosperous world. I’ve seen it myself how this works. When you pull down the barriers, when you provide opportunities for people to cooperate, beautiful things happen. I see it constantly at the Atlanta Bitcoin Embassy. This is a place where people from all walks of life come together in a spirit of joyful cooperation to build the future. This inspires me more than anything else and points to the kind of future that can be built by a P2P technology. It’s a microcosm of what life in the cryptocon can be like.

Wendy: Thank you, Jeff! This has been fascinating.

[To be continued next week.]

Reprints of this article should credit Bitcoin.com and include a link back to the book

Wendy McElroy has “published” her new book The Satoshi Revolution exclusively with Bitcoin.com. However, things aren’t over yet. Every Saturday you’ll find another installment in a series of interviews about sections of the book with people like Doug Casey, L.Neil Smith, Jeff Tucker, Carl Watner…and so on. Altogether they’ll make up her new book ”The Satoshi Revolution”.